THE QUESTION IS OF ADVANCED FINANCIAL MANAGEMENT

QUESTION 1 (a) Give the names of at least three exchanges where financial derivatives are traded. Which one is the largest?

(b) What happens to long position holder of a call option if (I) price of the underlying asset increases (II) price of the underlying asset decreases. When will the long position holder of a call option exercise the option?

(c) What happens to short position holder of a put option if (I) price of the underlying asset increases (II) price of the underlying asset decreases. When will the short position holder of a put option exercise the option?

(d) Define the following concepts: (a) Daily price limit (b) marking-to-market (c) clearing margin? What is the main purpose of a clearinghouse in a financial derivative exchange? What is the difference between a local and future commission merchant?